Professional trustee appointments should be subject to a formal process to address conflicts of interest concerns, particularly relating to sole trustee appointments, industry commentators have said.
Responses to the Department for Work and Pensions’ (DWP) consultation on the future of trusteeship, which closes on Friday (6 March), have focused on ensuring there are safeguards in place when decisions are made to bring in professional trustees.
Several respondents said safeguards were particularly important for sole trustee appointments and to address conflicts of interest where professional trustee firms offer additional services such as administration or investment advice.
“As professional trustee firms grow and consolidation accelerates, we need safeguards that keep member interests at the centre of every decision.”
David Fairs, LCP
Stewart Hastie, chair of the Association of Consulting Actuaries (ACA), warned that conflicts of interest were likely to become more significant as trustees gained increased powers, including the ability to distribute scheme surplus back to sponsoring employers.
He said: “Conflicts of interest can arise for professional trustee firms, both in terms of the appointment of connected firms and from the employer’s power to appoint or replace a professional trustee.
“We would not want to see a change to the balance of power impacting employer appointments of trustees. However, we suggest that consideration should be given to a more formal process for appointment – including notification to the Pensions Regulator (TPR) where a professional trustee or sole trustee is being appointed and/or replaced.”
Consultancy group LCP echoed the ACA’s response and recommended an independent appointment process and oversight, particularly for sole trustee arrangements, which are typically made by the sponsoring employer.
The company also called for regular independent reviews of sole trustee performance and governance, as well as “clearer TPR guidance to support consistent conflict management across the industry”.
David Fairs, partner at LCP, said: “As professional trustee firms grow and consolidation accelerates, we need safeguards that keep member interests at the centre of every decision.
“Independent oversight of trustee appointments and clearer guidance on conflicts will help maintain trust in the system and ensure governance keeps pace with the scale and complexity of modern pension schemes.”
Lay trustee standards are high enough
Meanwhile, respondents to the consultation also urged the government not to lift the bar further on standards for lay trustees.
“We must dispel the damaging fiction that some have that lay trustees are just ‘amateurs’… They often bring vital professional skills in areas such as HR, law, and finance.”
Maggie Rodger and John Flynn, AMNT
In a joint statement, Maggie Rodger and John Flynn, co-chairs of the Association of Member-Nominated Trustees, said: “Diversity of experience and opinion in order to avoid ‘groupthink’ remains core to good governance.
“And we must dispel the damaging fiction that some have that lay trustees are just ‘amateurs’. They may be ‘lay’ to the pensions industry, but they often bring vital professional skills in areas such as HR, law, and finance.
“Additionally, member trustees are the only group with ‘skin in the game’ in the decision-making of the pension scheme. They undoubtedly want what is best for members because it is best for them too.”
Peter Williams, chair of the ACA’s pension schemes committee, said: “We have a strong view that the requirements for lay trustees should not be raised, as this would make it even more difficult to attract candidates to these key positions.”
He emphasised that the collective skillset of the trustee board matters most, rather than the credentials of each individual member.
The ACA also emphasised the importance of diversity on trustee boards, adding that lay and member-nominated trustees contribute valuable perspectives to decision-making.
Institutional-grade leadership on trustee boards
Kim Nash, managing director at Zedra and a professional trustee, said the nature of trusteeship had “changed significantly over recent years” with the growth of master trusts and increasing numbers of defined benefit (DB) pension schemes exploring endgame options.
“In this environment, traditional approaches to trusteeship are no longer sufficient,” Nash said. “The scale, complexity and pace of change across both DB and defined contribution arrangements (DC) mean governance can no longer be reactive or purely compliance-driven.
“Effective trusteeship increasingly requires a dynamic approach, underpinned by a clear strategic framework and the capacity, in terms of both time and leadership, to enable effective and timely decision-making.”
She added that Zedra supported accreditation for all professional trustees “to help raise governance standards consistently across the market”.
David Brooks, head of policy at Broadstone, agreed, adding that the transforming landscape “will require institution‑grade governance for DC megafunds, stronger readiness for DB transactions, and system‑wide improvements in conflict management, data assurance and administrator oversight”.
He said: “It is encouraging that DWP is proactively pursuing measures that could drive a step change in the standards across the pensions industry. Ultimately, this is critical to developing a system that will deliver the best possible outcomes and experience for savers, helping to build trust.”
In its response, Broadstone contended that the consolidation of DC schemes into master trusts meant governance needed to include “clearer risk appetite statements, FTSE-style committee structures, independent oversight of illiquids and decumulation pathways, and vastly enhanced operational-resilience and cyber-governance disciplines”.
